Are Ilshin Spinning's (KRX:003200) Statutory Earnings A Good Guide To Its Underlying Profitability?

As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Ilshin Spinning (KRX:003200).

It's good to see that over the last twelve months Ilshin Spinning made a profit of ₩8.27b on revenue of ₩469.9b. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

See our latest analysis for Ilshin Spinning

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Ilshin Spinning's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ilshin Spinning.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Ilshin Spinning's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩3.5b due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Ilshin Spinning doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Ilshin Spinning's Profit Performance

Unusual items (expenses) detracted from Ilshin Spinning's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Ilshin Spinning's statutory profit actually understates its earnings potential! And the EPS is up 9.5% over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've found that Ilshin Spinning has 2 warning signs (1 can't be ignored!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Ilshin Spinning's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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